ITEM 1. FINANCIAL STATEMENTS.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
We declared and paid cash dividends of $0.16 per Common Share for the three months ended March 31, 2020.
The accompanying notes are an integral part of these consolidated financial statements.
We declared and paid cash dividends of $0.16 per Common Share for the three months ended March 31, 2019.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by The Goodyear Tire & Rubber Company (the “Company,” “Goodyear,” “we,” “us” or “our”) in accordance with Securities and Exchange Commission (“SEC”) rules and regulations and generally accepted accounting principles in the United States of America ("U.S. GAAP") and in the opinion of management contain all adjustments (including normal recurring adjustments) necessary to fairly state the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”).
We maintain a robust business continuity plan to adequately respond to situations such as the COVID-19 pandemic, including a framework for remote work arrangements, in order to effectively maintain operations, including financial reporting systems, internal controls over financial reporting and disclosure controls and procedures.
Effective January 1, 2020, we early adopted, as permitted, SEC amendments to the financial disclosure requirements for registered debt securities with subsidiary guarantees. The amendments replace the condensed consolidating financial information with summarized financial information of the issuers and guarantors, require expanded qualitative disclosures with respect to information about guarantors, the terms and conditions of guarantees and the factors that may affect payment, and permit these disclosures to be provided outside the footnotes to the parent company’s audited annual and interim consolidated financial statements. We have elected to provide this information in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results expected in subsequent quarters or for the year ending December 31, 2020.
Recently Adopted Accounting Standards
Effective January 1, 2020, we adopted an accounting standards update with new guidance on accounting for credit losses on financial instruments. The new guidance includes an impairment model for estimating credit losses that is based on expected losses, rather than incurred losses. As a result of using the modified retrospective adoption approach, $12 million was recorded as a cumulative effect adjustment to decrease Retained Earnings, with Accounts Receivable decreasing by $15 million and Deferred Income Taxes increasing by $3 million.
The following table presents the balance of allowances for credit losses, which represents our allowance for doubtful accounts associated with accounts receivable, and the changes during the three months ended March 31, 2020:
(In millions)
|
|
Balance at
January 1,
2020
|
|
|
Current period provision
|
|
|
Write-offs charged against the allowance
|
|
|
Recoveries of amounts previously written off
|
|
|
Translation
|
|
|
Balance at
March 31,
2020
|
|
Americas
|
|
$
|
38
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
34
|
|
Europe, Middle East & Africa
|
|
|
78
|
|
|
|
14
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
87
|
|
Asia
|
|
|
10
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10
|
|
Total
|
|
$
|
126
|
|
|
$
|
14
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
(7
|
)
|
|
$
|
131
|
|
Effective January 1, 2020, we adopted an accounting standards update with new guidance requiring a customer in a cloud computing arrangement that is a service contract to follow existing internal-use software guidance to determine which implementation costs to capitalize as an asset. The adoption of this standards update did not impact our consolidated financial statements.
Recently Issued Accounting Standards
In January 2020, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update which clarifies the interaction between the accounting for investments in equity securities, equity method investments and certain derivative instruments. The new standard is expected to reduce diversity in practice and increase comparability of the accounting for these interactions. The standards update is effective prospectively for fiscal years and interim periods beginning after December 15, 2020, with early adoption permitted. We are currently assessing the impact of this standards update on our consolidated financial statements.
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In December 2019, the FASB issued an accounting standards update with new guidance that changes the accounting for certain income tax transactions. The standards update is effective for fiscal years and interim periods beginning after December 15, 2020, with early adoption permitted. The amendments in this update related to separate financial statements of legal entities that are not subject to tax should be applied on a retrospective basis for all periods presented. The amendments related to changes in ownership of foreign equity method investments or foreign subsidiaries should be applied on a modified retrospective basis. The amendments related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis. All other amendments should be applied on a prospective basis. The adoption of this accounting standards update is not expected to have a material impact on our consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of all legal entities in which we hold a controlling financial interest. A controlling financial interest generally arises from our ownership of a majority of the voting shares of our subsidiaries. We would also hold a controlling financial interest in variable interest entities if we are considered to be the primary beneficiary. Investments in companies in which we do not own a majority interest and we have the ability to exercise significant influence over operating and financial policies are accounted for using the equity method. Investments in other companies are carried at cost. All intercompany balances and transactions have been eliminated in consolidation.
Restricted Cash
The following table provides a reconciliation of Cash, Cash Equivalents and Restricted Cash as reported within the Consolidated Statements of Cash Flows:
|
|
March 31,
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
Cash and Cash Equivalents
|
|
$
|
971
|
|
|
$
|
860
|
|
Restricted Cash
|
|
|
65
|
|
|
|
50
|
|
Total Cash, Cash Equivalents and Restricted Cash
|
|
$
|
1,036
|
|
|
$
|
910
|
|
Restricted Cash, which is included in Prepaid Expenses and Other Current Assets in the Consolidated Balance Sheets, primarily represents amounts required to be set aside in connection with accounts receivable factoring programs. The restrictions lapse when cash from factored accounts receivable is remitted to the purchaser of those receivables.
Reclassifications and Adjustments
Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation.
NOTE 2. NET SALES
The following tables show disaggregated net sales from contracts with customers by major source:
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
Europe, Middle East
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Americas
|
|
|
and Africa
|
|
|
Asia Pacific
|
|
|
Total
|
|
Tire unit sales
|
|
$
|
1,306
|
|
|
$
|
904
|
|
|
$
|
343
|
|
|
$
|
2,553
|
|
Other tire and related sales
|
|
|
142
|
|
|
|
72
|
|
|
|
32
|
|
|
|
246
|
|
Retail services and service related sales
|
|
|
133
|
|
|
|
18
|
|
|
|
12
|
|
|
|
163
|
|
Chemical sales
|
|
|
91
|
|
|
|
—
|
|
|
|
—
|
|
|
|
91
|
|
Other
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
3
|
|
Net Sales by reportable segment
|
|
$
|
1,673
|
|
|
$
|
995
|
|
|
$
|
388
|
|
|
$
|
3,056
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
Europe, Middle East
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Americas
|
|
|
and Africa
|
|
|
Asia Pacific
|
|
|
Total
|
|
Tire unit sales
|
|
$
|
1,487
|
|
|
$
|
1,120
|
|
|
$
|
453
|
|
|
$
|
3,060
|
|
Other tire and related sales
|
|
|
143
|
|
|
|
91
|
|
|
|
32
|
|
|
|
266
|
|
Retail services and service related sales
|
|
|
132
|
|
|
|
8
|
|
|
|
15
|
|
|
|
155
|
|
Chemical sales
|
|
|
109
|
|
|
|
—
|
|
|
|
—
|
|
|
|
109
|
|
Other
|
|
|
5
|
|
|
|
2
|
|
|
|
1
|
|
|
|
8
|
|
Net Sales by reportable segment
|
|
$
|
1,876
|
|
|
$
|
1,221
|
|
|
$
|
501
|
|
|
$
|
3,598
|
|
Tire unit sales consist of consumer, commercial, farm and off-the-road tire sales, including the sale of new Company-branded tires through Company-owned retail channels. Other tire and related sales consist of aviation, race, motorcycle and all-terrain vehicle tire sales, retread sales and other tire related sales. Sales of tires in this category are not included in reported tire unit information. Retail services and service related sales consist of automotive services performed for customers through our
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Company-owned retail channels, and includes service related products. Chemical sales relate to the sale of synthetic rubber and other chemicals to third parties, and exclude intercompany sales. Other sales include items such as franchise fees and ancillary tire parts.
When we receive consideration from a customer prior to transferring goods or services under the terms of a sales contract, we record deferred revenue, which represents a contract liability. Deferred revenue included in Other Current Liabilities in the Consolidated Balance Sheets totaled $24 million and $23 million at March 31, 2020 and December 31, 2019, respectively. Deferred revenue included in Other Long Term Liabilities in the Consolidated Balance Sheets totaled $28 million and $31 million at March 31, 2020 and December 31, 2019, respectively. We recognize deferred revenue after we have transferred control of the goods or services to the customer and all revenue recognition criteria are met.
The following table presents the balance of deferred revenue related to contracts with customers, and changes during the three months ended March 31, 2020:
(In millions)
|
|
|
|
|
Balance at December 31, 2019
|
|
$
|
54
|
|
Revenue deferred during period
|
|
|
29
|
|
Revenue recognized during period
|
|
|
(31
|
)
|
Impact of foreign currency translation
|
|
|
—
|
|
Balance at March 31, 2020
|
|
$
|
52
|
|
NOTE 3. COSTS ASSOCIATED WITH RATIONALIZATION PROGRAMS
In order to maintain our global competitiveness, we have implemented rationalization actions over the past several years to reduce high-cost and excess manufacturing capacity and associate headcount.
The following table shows the roll-forward of our liability between periods:
|
|
Associate-
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Related Costs
|
|
|
Other Costs
|
|
|
Total
|
|
Balance at December 31, 2019
|
|
$
|
220
|
|
|
$
|
—
|
|
|
$
|
220
|
|
2020 Charges(1)
|
|
|
8
|
|
|
|
5
|
|
|
|
13
|
|
Incurred, net of foreign currency translation of $(4) million and $0 million, respectively
|
|
|
(72
|
)
|
|
|
(5
|
)
|
|
|
(77
|
)
|
Reversed to the Statement of Operations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at March 31, 2020
|
|
$
|
156
|
|
|
$
|
—
|
|
|
$
|
156
|
|
(1)
|
Charges of $13 million in 2020 exclude a $4 million credit for benefit plan curtailments and settlements recorded in Rationalizations in the Statement of Operations.
|
During the first quarter of 2019, we approved a plan to modernize two of our tire manufacturing facilities in Germany. We have $99 million accrued related to this plan at March 31, 2020, which is expected to be substantially paid through 2022. The remainder of the accrual balance at March 31, 2020 is expected to be substantially utilized in the next 12 months and includes $20 million related to plans to reduce manufacturing headcount and improve operating efficiency in Europe, Middle East and Africa ("EMEA"), $14 million related to a plan primarily to offer voluntary buy-outs to certain associates at our Gadsden, Alabama manufacturing facility, $14 million related to global plans to reduce Selling, Administrative and General Expense ("SAG") headcount and $4 million related to a plan to reduce manufacturing headcount and improve operating efficiency in Americas.
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Table of contents
The following table shows net rationalization charges included in Income (Loss) before Income Taxes:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
Current Year Plans
|
|
|
|
|
|
|
|
|
Associate Severance and Other Related Costs
|
|
$
|
2
|
|
|
$
|
98
|
|
Benefit Plan Termination Benefits
|
|
|
—
|
|
|
|
1
|
|
Other Exit Costs
|
|
|
—
|
|
|
|
1
|
|
Current Year Plans - Net Charges
|
|
$
|
2
|
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
Prior Year Plans
|
|
|
|
|
|
|
|
|
Associate Severance and Other Related Costs
|
|
$
|
6
|
|
|
$
|
—
|
|
Benefit Plan Termination Benefits
|
|
|
(4
|
)
|
|
|
—
|
|
Other Exit Costs
|
|
|
5
|
|
|
|
3
|
|
Prior Year Plans - Net Charges
|
|
|
7
|
|
|
|
3
|
|
Total Net Charges
|
|
$
|
9
|
|
|
$
|
103
|
|
Asset Write-off and Accelerated Depreciation Charges
|
|
$
|
4
|
|
|
$
|
—
|
|
Substantially all of the new charges for the three months ended March 31, 2020 and 2019 related to future cash outflows. Current year plan charges for the three months ended March 31, 2019 include $93 million related to a plan to modernize two of our tire manufacturing facilities in Germany and $7 million related to a plan to reduce manufacturing headcount and improve operating efficiency in Americas.
Net prior year plan charges for the three months ended March 31, 2020 were $7 million and included $5 million related to a plan to modernize two of our tire manufacturing facilities in Germany and $3 million related to a plan primarily to offer voluntary buy-outs to certain associates at our Gadsden, Alabama manufacturing facility. Net prior year plan charges for the three months ended March 31, 2020 also included a curtailment credit of $4 million for one of our postretirement benefit plans, related to the exit of employees under an approved rationalization plan. Net prior year plan charges for the three months ended March 31, 2019 were $3 million, primarily related to EMEA manufacturing plans. Net prior year plan charges for the three months ended March 31, 2019 also included reversals of $2 million for actions no longer needed for their originally intended purposes.
Ongoing rationalization plans had approximately $930 million in charges incurred prior to 2020 and approximately $45 million is expected to be incurred in future periods.
Approximately 50 associates will be released under new plans initiated in 2020. In the first three months of 2020, approximately 600 associates were released under plans initiated in prior years. Approximately 900 associates remain to be released under all ongoing rationalization plans.
Approximately 850 former associates of the closed Amiens, France manufacturing facility have asserted wrongful termination or other claims against us. Refer to Note to the Consolidated Financial Statements No. 14, Commitments and Contingent Liabilities.
NOTE 4. OTHER (INCOME) EXPENSE
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
Non-service related pension and other postretirement benefits cost
|
|
$
|
26
|
|
|
$
|
30
|
|
Financing fees and financial instruments expense
|
|
|
7
|
|
|
|
8
|
|
Net foreign currency exchange (gains) losses
|
|
|
(1
|
)
|
|
|
(7
|
)
|
General and product liability expense - discontinued products
|
|
|
2
|
|
|
|
6
|
|
Royalty income
|
|
|
(5
|
)
|
|
|
(5
|
)
|
Net (gains) losses on asset sales
|
|
|
(1
|
)
|
|
|
(5
|
)
|
Interest income
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Miscellaneous (income) expense
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
$
|
27
|
|
|
$
|
22
|
|
Non-service related pension and other postretirement benefits cost consists primarily of the interest cost, expected return on plan assets and amortization components of net periodic cost, as well as curtailments and settlements which are not related to rationalization plans. For further information, refer to Note to the Consolidated Financial Statements No. 12, Pension, Savings and Other Postretirement Benefit Plans.
Other (Income) Expense also includes financing fees and financial instruments expense which consists of commitment fees and charges incurred in connection with financing transactions; net foreign currency exchange (gains) and losses; general and product
10
Table of contents
liability expense - discontinued products, which consists of charges for claims against us related primarily to asbestos personal injury claims, net of probable insurance recoveries; royalty income which is derived primarily from licensing arrangements; net (gains) and losses on asset sales; and interest income.
NOTE 5. INCOME TAXES
For the first quarter of 2020, we recorded tax expense of $249 million on a loss before income taxes of $368 million. Income tax expense for the three months ended March 31, 2020 includes net discrete charges of $290 million, primarily related to the establishment of a valuation allowance on deferred tax assets for foreign tax credits.
In the first quarter of 2019, we recorded tax expense of $6 million on a loss before income taxes of $38 million. Income tax expense for the three months ended March 31, 2019 includes net discrete charges of $7 million.
We record taxes based on overall estimated annual effective tax rates. The difference between our effective tax rate and the U.S. statutory rate of 21% for the three months ended March 31, 2020 primarily relates to the discrete items noted above, a non-cash goodwill impairment charge of $182 million, and forecasted losses for the full year in foreign jurisdictions in which no tax benefits are recorded, which have been accentuated during 2020 by business interruptions resulting from the COVID-19 pandemic. The difference between our effective tax rate and the U.S. statutory rate of 21% for the three months ended March 31, 2019 primarily relates to the discrete items noted above and the overall higher effective tax rate in the foreign jurisdictions in which we operate, partially offset by a benefit from our foreign derived intangible income deduction. For further information regarding the non-cash goodwill impairment charge, refer to Note to the Consolidated Financial Statements No. 8, Goodwill and Intangible Assets.
We consider both positive and negative evidence when measuring the need for a valuation allowance. The weight given to the evidence is commensurate with the extent to which it may be objectively verified. Current and cumulative financial reporting results are a source of objectively verifiable evidence. We give operating results during the most recent three-year period a significant weight in our analysis. We typically only consider forecasts of future profitability when positive cumulative operating results exist in the most recent three-year period. We perform scheduling exercises to determine if sufficient taxable income of the appropriate character exists in the periods required in order to realize our deferred tax assets with limited lives (such as tax loss carryforwards and tax credits) prior to their expiration. We consider tax planning strategies available to accelerate taxable amounts if required to utilize expiring deferred tax assets. A valuation allowance is not required to the extent that, in our judgment, positive evidence exists with a magnitude and duration sufficient to result in a conclusion that it is more likely than not that our deferred tax assets will be realized.
At March 31, 2020, we had approximately $1.0 billion of U.S. federal, state and local deferred tax assets, net of valuation allowances primarily related to foreign tax credits with limited lives totaling $308 million. In the U.S., we have cumulative positive profitability in the three-year period ended December 31, 2019; however, negative evidence of reduced profitability as a result of the business disruption created by the COVID-19 pandemic must be considered in our assessment of our ability to realize our net deferred tax assets. While the disruption to our business is currently expected to be temporary, there is considerable uncertainty around the extent and duration of that disruption. If our profitability deteriorates enough that our future results for a three-year period are no longer positive, a valuation allowance may be required against all of our U.S. net deferred tax assets.
At December 31, 2019, our U.S. deferred tax assets included $403 million of foreign tax credits, net of valuation allowances of $3 million, generated primarily from the receipt of foreign dividends. During the first quarter of 2020, we established an additional valuation allowance of $295 million against substantially all of these foreign tax credits with expiration dates through 2025. Due to the sudden and sharp decline in industry demand and the suspension of production at our U.S. manufacturing facilities as a result of the COVID-19 pandemic, we are expecting to incur a significant U.S. tax loss for 2020. As loss carry-forwards must be utilized prior to foreign tax credits in offsetting future income for tax purposes, we have now concluded that it is no longer more likely than not that we will be able to utilize these foreign tax credits prior to their expiration. Our earnings and forecasts of future profitability along with three significant sources of foreign income provide us sufficient positive evidence that we will be able to utilize our remaining foreign tax credits of $108 million that expire between 2025 and 2028. Our sources of foreign income are (1) 100% of our domestic profitability can be re-characterized as foreign source income under current U.S. tax law to the extent domestic losses have offset foreign source income in prior years, (2) annual net foreign source income, exclusive of dividends, primarily from royalties, and (3) tax planning strategies, including capitalizing research and development costs, accelerating income on cross border sales of inventory or raw materials to our subsidiaries and reducing U.S. interest expense by, for example, reducing intercompany loans through repatriating current year earnings of foreign subsidiaries, all of which would increase our domestic profitability.
We consider our current forecasts of future profitability in assessing our ability to realize our deferred tax assets, including our foreign tax credits. These forecasts include the impact of recent trends, including various macroeconomic factors such as the impact of the COVID-19 pandemic, on our profitability, as well as the impact of tax planning strategies. Macroeconomic factors, including the impact of the COVID-19 pandemic, possess a high degree of volatility and can significantly impact our profitability. As such, there is a risk that future earnings will not be sufficient to fully utilize our U.S. net deferred tax assets, including our remaining foreign tax credits. However, we believe our forecasts of future profitability along with the three significant sources of foreign income described above provide us sufficient positive evidence to conclude that it is more likely
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Table of contents
than not that, at March 31, 2020, our U.S. net deferred tax assets, including our foreign tax credits, net of valuation allowances, will be fully utilized.
At March 31, 2020, we had approximately $1.2 billion of foreign deferred tax assets and a valuation allowance of $939 million. Our losses in various foreign taxing jurisdictions in recent periods represented sufficient negative evidence to require us to maintain a full valuation allowance against certain of our net deferred tax assets. In Luxembourg, we maintain a valuation allowance of approximately $850 million on all net deferred tax assets. Each reporting period, we assess available positive and negative evidence and estimate if sufficient future taxable income will be generated to utilize these existing deferred tax assets. We do not believe that sufficient positive evidence required to release valuation allowances having a significant impact on our financial position or results of operations will exist within the next twelve months.
For the three months ending March 31, 2020, changes to our unrecognized tax benefits did not, and for the full year of 2020 are not expected to, have a significant impact on our financial position or results of operations.
On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), a substantial tax and spending package intended to provide economic stimulus to address the impact of the COVID-19 pandemic. The CARES Act allows corporations with net operating losses generated in 2018, 2019 and 2020 to elect to carryback those losses for a period of five years and relaxes the limitation for business interest deductions for 2019 and 2020. We do not anticipate that these provisions will have a material impact on our operating results. We will, however, benefit from a CARES Act provision that accelerates the ability of corporations to claim a refund of alternative minimum tax credit carryforwards. Under this provision, we anticipate receiving a refund of approximately $5 million during the second quarter of 2020 that would otherwise have been received in two equal annual installments in 2021 and 2022.
We are open to examination in the United States for 2019 and in Germany from 2016 onward. Generally, for our remaining tax jurisdictions, years from 2014 onward are still open to examination.
NOTE 6. EARNINGS PER SHARE
Basic earnings per share are computed based on the weighted average number of common shares outstanding. Diluted earnings per share are calculated to reflect the potential dilution that could occur if securities or other contracts were exercised or converted into common stock.
Basic and diluted earnings per common share are calculated as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions, except per share amounts)
|
|
2020
|
|
|
2019
|
|
Earnings (loss) per share — basic:
|
|
|
|
|
|
|
|
|
Goodyear net income (loss)
|
|
$
|
(619
|
)
|
|
$
|
(61
|
)
|
Weighted average shares outstanding
|
|
|
234
|
|
|
|
232
|
|
Earnings (loss) per common share — basic
|
|
$
|
(2.65
|
)
|
|
$
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share — diluted:
|
|
|
|
|
|
|
|
|
Goodyear net income (loss)
|
|
$
|
(619
|
)
|
|
$
|
(61
|
)
|
Weighted average shares outstanding
|
|
|
234
|
|
|
|
232
|
|
Dilutive effect of stock options and other dilutive securities
|
|
|
—
|
|
|
|
—
|
|
Weighted average shares outstanding — diluted
|
|
|
234
|
|
|
|
232
|
|
Earnings (loss) per common share — diluted
|
|
$
|
(2.65
|
)
|
|
$
|
(0.26
|
)
|
Weighted average shares outstanding – diluted for the three months ended March 31, 2019 excludes the dilutive effect of approximately 3 million equivalent shares related primarily to options with exercise prices less than the average market price of our common shares (i.e., “in-the-money” options) as their inclusion would have been anti-dilutive due to the Goodyear net loss. There were no in-the-money options at March 31, 2020. Additionally, weighted average shares outstanding - diluted for the three months ended March 31, 2020 and 2019 exclude approximately 9 million and 2 million equivalent shares, respectively, related to options with exercise prices greater than the average market price of our common shares (i.e., "underwater" options).
12
Table of contents
NOTE 7. BUSINESS SEGMENTS
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
Sales:
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
1,673
|
|
|
$
|
1,876
|
|
Europe, Middle East and Africa
|
|
|
995
|
|
|
|
1,221
|
|
Asia Pacific
|
|
|
388
|
|
|
|
501
|
|
Net Sales
|
|
$
|
3,056
|
|
|
$
|
3,598
|
|
Segment Operating Income (Loss):
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
—
|
|
|
$
|
89
|
|
Europe, Middle East and Africa
|
|
|
(53
|
)
|
|
|
54
|
|
Asia Pacific
|
|
|
6
|
|
|
|
47
|
|
Total Segment Operating Income (Loss)
|
|
$
|
(47
|
)
|
|
$
|
190
|
|
Less:
|
|
|
|
|
|
|
|
|
Goodwill impairment (Note 8)
|
|
$
|
182
|
|
|
$
|
—
|
|
Rationalizations (Note 3)
|
|
|
9
|
|
|
|
103
|
|
Interest expense
|
|
|
73
|
|
|
|
85
|
|
Other (income) expense (Note 4)
|
|
|
27
|
|
|
|
22
|
|
Asset write-offs and accelerated depreciation
|
|
|
4
|
|
|
|
—
|
|
Retained expenses of divested operations
|
|
|
2
|
|
|
|
3
|
|
Other
|
|
|
24
|
|
|
|
15
|
|
Income (Loss) before Income Taxes
|
|
$
|
(368
|
)
|
|
$
|
(38
|
)
|
Non-cash goodwill impairment charges, as described in Note to the Consolidated Financial Statements No. 8, Goodwill and Intangible Assets; rationalizations, as described in Note to the Consolidated Financial Statements No. 3, Costs Associated with Rationalization Programs; net (gains) losses on asset sales, as described in Note to the Consolidated Financial Statements No. 4, Other (Income) Expense; and asset write-offs and accelerated depreciation were not charged to the strategic business units ("SBUs") for performance evaluation purposes but were attributable to the SBUs as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
Goodwill Impairment:
|
|
|
|
|
|
|
|
|
Europe, Middle East and Africa
|
|
$
|
182
|
|
|
$
|
—
|
|
Total Goodwill Impairment
|
|
$
|
182
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Rationalizations:
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
3
|
|
|
$
|
7
|
|
Europe, Middle East and Africa
|
|
|
6
|
|
|
|
96
|
|
Total Rationalizations
|
|
$
|
9
|
|
|
$
|
103
|
|
|
|
|
|
|
|
|
|
|
Net (Gains) Losses on Asset Sales:
|
|
|
|
|
|
|
|
|
Europe, Middle East and Africa
|
|
$
|
(1
|
)
|
|
$
|
(5
|
)
|
Total Net (Gains) Losses on Asset Sales
|
|
$
|
(1
|
)
|
|
$
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Asset Write-offs and Accelerated Depreciation:
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
4
|
|
|
$
|
—
|
|
Total Asset Write-offs and Accelerated Depreciation
|
|
$
|
4
|
|
|
$
|
—
|
|
13
Table of contents
NOTE 8. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets totaled $369 million and $135 million, respectively, at March 31, 2020, compared to $565 million and $137 million, respectively, at December 31, 2019. Goodwill and intangible assets with indefinite useful lives are tested for impairment annually either on a quantitative or qualitative basis, or more frequently when events or circumstances change that indicate the fair value of the asset may be below its carrying amount. As a result of the COVID-19 pandemic and the resulting decline in the macroeconomic environment, as well as a significant decrease in our market capitalization, we performed an interim impairment analysis as of March 31, 2020 utilizing a discounted cash flow model.
The most critical assumptions used in the calculation of the estimated fair value of our reporting units are the extent and duration of, as well as the timing of the recovery from, the ongoing COVID-19 pandemic, the projected long term operating margin and the discount rate. Since the date of our last annual quantitative goodwill impairment assessment, the overall discount rate increased, reflecting an increase in the risk premium components of the rate partially offset by a decrease in the risk-free interest rate component as a result of the current macroeconomic environment. Based on our current forecasts, we also gave consideration to the expected near-term negative cash flow impact of the ongoing COVID-19 pandemic and subsequent recovery, as well as the decrease in our market capitalization. Based on the results of our interim quantitative assessment, we recorded a non-cash impairment charge of $182 million for the EMEA reporting unit during the first quarter of 2020 to reduce the recorded balance of the EMEA reporting unit’s goodwill from $400 million to $218 million. As a result of this partial impairment, the fair value of the EMEA reporting unit now approximates its carrying value. As of March 31, 2020, the goodwill associated with reporting units in our Americas and Asia Pacific segments was $91 million and $60 million, respectively. If we make adverse revisions to our significant assumptions, including as a result of business performance or market conditions, or if our market capitalization declines further and if such a decline becomes indicative that the fair value of our reporting units has declined below their carrying values, we may need to record a material, non-cash goodwill impairment charge in a future period.
Intangible assets with indefinite lives totaled $118 million at both March 31, 2020 and December 31, 2019. We also conducted an assessment of our intangible assets with indefinite lives as of March 31, 2020, which indicated no impairment existed.
NOTE 9. OTHER ASSETS AND INVESTMENTS
The balance of our investment in TireHub, LLC (“TireHub”), a distribution joint venture in the United States, was $252 million and $262 million at March 31, 2020 and December 31, 2019, respectively, and was included in Other Assets on our Consolidated Balance Sheets. Our investment in TireHub is accounted for under the equity method of accounting and, as such, includes our 50% share of the net losses of TireHub, which totaled $12 million and $10 million for the first quarter of 2020 and 2019, respectively. We regularly review our investment in TireHub for potential impairment. Based on our assessment for the first quarter of 2020, we concluded that any decline in the fair value of our investment in TireHub as a result of current trends and factors is temporary in nature. As such, we did not adjust the balance recorded on our Consolidated Balance Sheet at March 31, 2020. However, if the current economic environment persists, an other-than-temporary decline in fair value could develop, necessitating the need for a future material non-cash impairment charge.
NOTE 10. FINANCING ARRANGEMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
At March 31, 2020, we had total credit arrangements of $8,618 million, of which $2,278 million were unused. At that date, 41% of our debt was at variable interest rates averaging 3.41%.
Notes Payable and Overdrafts, Long Term Debt and Finance Leases due Within One Year and Short Term Financing Arrangements
At March 31, 2020, we had short term committed and uncommitted credit arrangements totaling $869 million, of which $169 million were unused. These arrangements are available primarily to certain of our foreign subsidiaries through various banks at quoted market interest rates.
14
Table of contents
The following table presents amounts due within one year:
|
|
March 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
Chinese credit facilities
|
|
$
|
174
|
|
|
$
|
118
|
|
Other domestic and foreign debt
|
|
|
517
|
|
|
|
230
|
|
Notes Payable and Overdrafts
|
|
$
|
691
|
|
|
$
|
348
|
|
Weighted average interest rate
|
|
|
5.27
|
%
|
|
|
4.92
|
%
|
|
|
|
|
|
|
|
|
|
Chinese credit facilities
|
|
$
|
93
|
|
|
$
|
95
|
|
8.75% note due 2020
|
|
|
281
|
|
|
|
280
|
|
Other domestic and foreign debt (including finance leases)
|
|
|
247
|
|
|
|
187
|
|
Long Term Debt and Finance Leases due Within One Year
|
|
$
|
621
|
|
|
$
|
562
|
|
Weighted average interest rate
|
|
|
5.98
|
%
|
|
|
6.58
|
%
|
Total obligations due within one year
|
|
$
|
1,312
|
|
|
$
|
910
|
|
Long Term Debt and Finance Leases and Financing Arrangements
At March 31, 2020, we had long term credit arrangements totaling $7,749 million, of which $2,109 million were unused.
The following table presents long term debt and finance leases, net of unamortized discounts, and interest rates:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Interest
|
|
(In millions)
|
|
Amount
|
|
|
Rate
|
|
|
Amount
|
|
|
Rate
|
|
Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.75% due 2020
|
|
$
|
281
|
|
|
|
|
|
|
$
|
280
|
|
|
|
|
|
5.125% due 2023
|
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
3.75% Euro Notes due 2023
|
|
|
274
|
|
|
|
|
|
|
|
281
|
|
|
|
|
|
5% due 2026
|
|
|
900
|
|
|
|
|
|
|
|
900
|
|
|
|
|
|
4.875% due 2027
|
|
|
700
|
|
|
|
|
|
|
|
700
|
|
|
|
|
|
7% due 2028
|
|
|
150
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
Credit Facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First lien revolving credit facility due 2021
|
|
|
420
|
|
|
|
1.92
|
%
|
|
|
—
|
|
|
|
—
|
|
Second lien term loan facility due 2025
|
|
|
400
|
|
|
|
3.20
|
%
|
|
|
400
|
|
|
|
3.97
|
%
|
European revolving credit facility due 2024
|
|
|
66
|
|
|
|
1.50
|
%
|
|
|
—
|
|
|
|
—
|
|
Pan-European accounts receivable facility
|
|
|
166
|
|
|
|
1.10
|
%
|
|
|
327
|
|
|
|
0.98
|
%
|
Mexican credit facility
|
|
|
200
|
|
|
|
3.41
|
%
|
|
|
200
|
|
|
|
3.44
|
%
|
Chinese credit facilities
|
|
|
188
|
|
|
|
4.62
|
%
|
|
|
195
|
|
|
|
4.87
|
%
|
Other foreign and domestic debt(1)
|
|
|
868
|
|
|
|
2.98
|
%
|
|
|
661
|
|
|
|
4.02
|
%
|
|
|
|
5,613
|
|
|
|
|
|
|
|
5,094
|
|
|
|
|
|
Unamortized deferred financing fees
|
|
|
(27
|
)
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
5,586
|
|
|
|
|
|
|
|
5,066
|
|
|
|
|
|
Finance lease obligations(2)
|
|
|
247
|
|
|
|
|
|
|
|
249
|
|
|
|
|
|
|
|
|
5,833
|
|
|
|
|
|
|
|
5,315
|
|
|
|
|
|
Less portion due within one year
|
|
|
(621
|
)
|
|
|
|
|
|
|
(562
|
)
|
|
|
|
|
|
|
$
|
5,212
|
|
|
|
|
|
|
$
|
4,753
|
|
|
|
|
|
(1)
|
Interest rates are weighted average interest rates related to various foreign credit facilities with customary terms and conditions.
|
(2)
|
Includes non-cash financing additions of $1 million during the three month period ended March 31, 2020.
|
NOTES
At March 31, 2020, we had $3,305 million of outstanding notes, compared to $3,311 million at December 31, 2019.
CREDIT FACILITIES
$2.0 billion Amended and Restated First Lien Revolving Credit Facility due 2021
Our amended and restated first lien revolving credit facility is available in the form of loans or letters of credit, with letter of credit availability limited to $800 million. Subject to the consent of the lenders whose commitments are to be increased, we may request that the facility be increased by up to $250 million. Our obligations under the facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries. Our obligations under the facility and our subsidiaries' obligations under the
15
Table of contents
related guarantees are secured by first priority security interests in a variety of collateral. During the quarter ended March 31, 2020, amounts drawn under this facility bore interest at LIBOR plus 125 basis points, and undrawn amounts under the facility were subject to an annual commitment fee of 30 basis points.
Availability under the facility is subject to a borrowing base, which was based primarily on (i) eligible accounts receivable and inventory of The Goodyear Tire & Rubber Company and certain of its U.S. and Canadian subsidiaries, (ii) the value of our principal trademarks, and (iii) certain cash in an amount not to exceed $200 million. To the extent that our eligible accounts receivable and inventory and other components of the borrowing base decline in value, our borrowing base will decrease and the availability under the facility may decrease below $2.0 billion. As of March 31, 2020, our borrowing base, and therefore our availability, under this facility was $501 million below the facility's stated amount of $2.0 billion.
At March 31, 2020, we had $420 million of borrowings and $17 million of letters of credit issued under the revolving credit facility. At December 31, 2019, we had no borrowings and $37 million of letters of credit issued under the revolving credit facility.
On April 9, 2020, we amended and restated the first lien revolving credit facility. Changes to the facility include extending the maturity to April 9, 2025 and increasing the borrowing base for the facility by increasing the amount attributable to the value of our principal trademarks by $100 million and adding the value of eligible machinery and equipment. The interest rate for loans under the facility increased by 50 basis points to LIBOR plus 175 basis points, based on our current liquidity, and undrawn amounts under the facility will be subject to an annual commitment fee of 25 basis points.
The facility has customary representations and warranties including, as a condition to borrowing, that all such representations and warranties are true and correct, in all material respects, on the date of the borrowing, including representations as to no material adverse change in our business or financial condition since December 31, 2019. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries.
Amended and Restated Second Lien Term Loan Facility due 2025
Our amended and restated second lien term loan facility matures on March 7, 2025. The term loan bears interest, at our option, at (i) 200 basis points over LIBOR or (ii) 100 basis points over an alternative base rate (the higher of (a) the prime rate, (b) the federal funds effective rate or the overnight bank funding rate plus 50 basis points or (c) LIBOR plus 100 basis points). In addition, if the Total Leverage Ratio is equal to or less than 1.25 to 1.00, we have the option to further reduce the spreads described above by 25 basis points. "Total Leverage Ratio" has the meaning given it in the facility.
Our obligations under our second lien term loan facility are guaranteed by most of our wholly-owned U.S. and Canadian subsidiaries and are secured by second priority security interests in the same collateral securing the $2.0 billion first lien revolving credit facility.
At March 31, 2020 and December 31, 2019, the amounts outstanding under this facility were $400 million.
€800 million Amended and Restated Senior Secured European Revolving Credit Facility due 2024
Our amended and restated European revolving credit facility consists of (i) a €180 million German tranche that is available only to Goodyear Dunlop Tires Germany GmbH (“GDTG”) and (ii) a €620 million all-borrower tranche that is available to Goodyear Europe B.V. (“GEBV”), GDTG and Goodyear Dunlop Tires Operations S.A. Up to €175 million of swingline loans and €75 million in letters of credit are available for issuance under the all-borrower tranche. Amounts drawn under this facility will bear interest at LIBOR plus 150 basis points for loans denominated in U.S. dollars or pounds sterling and EURIBOR plus 150 basis points for loans denominated in euros, and undrawn amounts under the facility are subject to an annual commitment fee of 25 basis points.
GEBV and certain of its subsidiaries in the United Kingdom, Luxembourg, France and Germany provide guarantees to support the facility. The German guarantors secure the German tranche on a first-lien basis and the all-borrower tranche on a second-lien basis. GEBV and its other subsidiaries that provide guarantees secure the all-borrower tranche on a first-lien basis and generally do not provide collateral support for the German tranche. The Company and its U.S. and Canadian subsidiaries that guarantee our U.S. senior secured credit facilities described above also provide unsecured guarantees in support of the facility.
The facility has customary representations and warranties including, as a condition to borrowing, that all such representations and warranties are true and correct, in all material respects, on the date of the borrowing, including representations as to no material adverse change in our business or financial condition since December 31, 2018. The facility also has customary defaults, including a cross-default to material indebtedness of Goodyear and our subsidiaries.
At March 31, 2020, there were no of borrowings outstanding under the German tranche, $66 million (€60 million) of borrowings outstanding under the all-borrower tranche and no letters of credit outstanding under the European revolving credit facility. At December 31, 2019, there were no borrowings and no letters of credit outstanding under the European revolving credit facility.
Accounts Receivable Securitization Facilities (On-Balance Sheet)
GEBV and certain other of our European subsidiaries are parties to a pan-European accounts receivable securitization facility that expires in 2023. The terms of the facility provide the flexibility to designate annually the maximum amount of funding
16
Table of contents
available under the facility in an amount of not less than €30 million and not more than €450 million. For the period from October 18, 2018 through October 15, 2020, the designated maximum amount of the facility is €320 million.
The facility involves the ongoing daily sale of substantially all of the trade accounts receivable of certain GEBV subsidiaries. These subsidiaries retain servicing responsibilities. Utilization under this facility is based on eligible receivable balances.
The funding commitments under the facility will expire upon the earliest to occur of: (a) September 26, 2023, (b) the non-renewal and expiration (without substitution) of all of the back-up liquidity commitments, (c) the early termination of the facility according to its terms (generally upon an Early Amortisation Event (as defined in the facility), which includes, among other things, events similar to the events of default under our senior secured credit facilities; certain tax law changes; or certain changes to law, regulation or accounting standards), or (d) our request for early termination of the facility. The facility’s current back-up liquidity commitments will expire on October 15, 2020.
At March 31, 2020, the amounts available and utilized under this program totaled $166 million (€151 million). At December 31, 2019, the amounts available and utilized under this program totaled $327 million (€291 million). The program does not qualify for sale accounting, and accordingly, these amounts are included in Long Term Debt and Finance Leases.
For a description of the collateral securing the credit facilities described above as well as the covenants applicable to them, refer to Note to the Consolidated Financial Statements No. 15, Financing Arrangements and Derivative Financial Instruments, in our 2019 Form 10-K.
Accounts Receivable Factoring Facilities (Off-Balance Sheet)
We have sold certain of our trade receivables under off-balance sheet programs. For these programs, we have concluded that there is generally no risk of loss to us from non-payment of the sold receivables. At March 31, 2020, the gross amount of receivables sold was $460 million, compared to $548 million at December 31, 2019.
Other Foreign Credit Facilities
A Mexican subsidiary and a U.S. subsidiary have a revolving credit facility in Mexico. At March 31, 2020 and December 31, 2019, the amounts available and utilized under this facility were $200 million. The facility ultimately matures in 2022, has covenants relating to the Mexican and U.S. subsidiary, and has customary representations and warranties and default provisions relating to the Mexican and U.S. subsidiary’s ability to perform its respective obligations under the facility.
A Chinese subsidiary has several financing arrangements in China. At March 31, 2020 and December 31, 2019, the amounts available under these facilities were $723 million and $735 million, respectively. At March 31, 2020, the amount utilized under these facilities was $362 million, of which $174 million represented notes payable and $188 million represented long term debt. At March 31, 2020, $93 million of the long term debt was due within a year. At December 31, 2019, the amount utilized under these facilities was $313 million, of which $118 million represented notes payable and $195 million represented long term debt. At December 31, 2019, $95 million of the long term debt was due within a year. The facilities contain covenants relating to the Chinese subsidiary and have customary representations and warranties and defaults relating to the Chinese subsidiary’s ability to perform its obligations under the facilities. Certain of the facilities can only be used to finance the expansion of our manufacturing facility in China and, at March 31, 2020 and December 31, 2019, the unused amounts available under these facilities were $107 million and $106 million, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
We utilize derivative financial instrument contracts and nonderivative instruments to manage interest rate, foreign exchange and commodity price risks. We have established a control environment that includes policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. We do not hold or issue derivative financial instruments for trading purposes.
Foreign Currency Contracts
We enter into foreign currency contracts in order to manage the impact of changes in foreign exchange rates on our consolidated results of operations and future foreign currency-denominated cash flows. These contracts may be used to reduce exposure to currency movements affecting existing foreign currency-denominated assets, liabilities, firm commitments and forecasted transactions resulting primarily from trade purchases and sales, equipment acquisitions, intercompany loans and royalty agreements. Contracts hedging short term trade receivables and payables normally have no hedging designation.
The following table presents the fair values for foreign currency hedge contracts that do not meet the criteria to be accounted for as cash flow hedging instruments:
|
|
March 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
Fair Values — Current asset (liability):
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
30
|
|
|
$
|
1
|
|
Other current liabilities
|
|
|
(8
|
)
|
|
|
(15
|
)
|
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At March 31, 2020 and December 31, 2019, these outstanding foreign currency derivatives had notional amounts of $2,104 million and $1,707 million, respectively, and were primarily related to intercompany loans. Other (Income) Expense included net transaction gains on derivatives of $39 million and $15 million for the three months ended March 31, 2020 and 2019, respectively. These amounts were substantially offset in Other (Income) Expense by the effect of changing exchange rates on the underlying currency exposures.
The following table presents the fair values for foreign currency hedge contracts that meet the criteria to be accounted for as cash flow hedging instruments:
|
|
March 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
Fair Values — Current asset (liability):
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
20
|
|
|
$
|
9
|
|
Other current liabilities
|
|
|
—
|
|
|
|
(3
|
)
|
Fair Values — Long term asset (liability):
|
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
4
|
|
|
$
|
1
|
|
Other long term liabilities
|
|
|
—
|
|
|
|
(1
|
)
|
At March 31, 2020 and December 31, 2019, these outstanding foreign currency derivatives had notional amounts of $342 million and $365 million, respectively, and primarily related to U.S. dollar denominated intercompany transactions. Based on our current forecasts, including the expected impacts of the COVID-19 pandemic, we believe that it is probable that the underlying hedge transactions will occur within an appropriate time frame in order to continue to qualify for cash flow hedge accounting treatment.
We enter into master netting agreements with counterparties. The amounts eligible for offset under the master netting agreements are not material and we have elected a gross presentation of foreign currency contracts in the Consolidated Balance Sheets.
The following table presents the classification of changes in fair values of foreign currency hedge contracts that meet the criteria to be accounted for as cash flow hedging instruments (before tax and minority):
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
Amount of gains (losses) deferred to Accumulated Other Comprehensive
Loss ("AOCL")(1)
|
|
$
|
23
|
|
|
$
|
5
|
|
Reclassification adjustment for amounts recognized in Cost of Goods
Sold ("CGS")(1)
|
|
|
(4
|
)
|
|
|
(3
|
)
|
(1)
|
Excluded components deferred to AOCL and excluded components reclassified from AOCL to CGS for the three months ended March 31, 2020 and 2019 were not material.
|
The estimated net amount of deferred gains at March 31, 2020 that are expected to be reclassified to earnings within the next twelve months is $16 million.
The counterparties to our foreign currency contracts were considered by us to be substantial and creditworthy financial institutions that were recognized market makers at the time we entered into those contracts. We seek to control our credit exposure to these counterparties by diversifying across multiple counterparties, by setting counterparty credit limits based on long term credit ratings and other indicators of counterparty credit risk such as credit default swap spreads, and by monitoring the financial strength of these counterparties on a regular basis. We also enter into master netting agreements with counterparties when possible. By controlling and monitoring exposure to counterparties in this manner, we believe that we effectively manage the risk of loss due to nonperformance by a counterparty. However, the inability of a counterparty to fulfill its contractual obligations to us could have a material adverse effect on our liquidity, financial position or results of operations in the period in which it occurs.
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NOTE 11. FAIR VALUE MEASUREMENTS
The following table presents information about assets and liabilities recorded at fair value on the Consolidated Balance Sheets at March 31, 2020 and December 31, 2019:
|
|
Total Carrying Value
in the
Consolidated
Balance Sheet
|
|
|
Quoted Prices in Active
Markets for Identical
Assets/Liabilities
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
9
|
|
|
$
|
11
|
|
|
$
|
9
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign Exchange Contracts
|
|
|
54
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
54
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
Total Assets at Fair Value
|
|
$
|
63
|
|
|
$
|
22
|
|
|
$
|
9
|
|
|
$
|
11
|
|
|
$
|
54
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Contracts
|
|
$
|
8
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total Liabilities at Fair Value
|
|
$
|
8
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The following table presents supplemental fair value information about long term fixed rate and variable rate debt, excluding finance leases, at March 31, 2020 and December 31, 2019:
|
|
March 31,
|
|
|
December 31,
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
Fixed Rate Debt:(1)
|
|
|
|
|
|
|
|
|
Carrying amount — liability
|
|
$
|
3,436
|
|
|
$
|
3,434
|
|
Fair value — liability
|
|
|
3,111
|
|
|
|
3,558
|
|
|
|
|
|
|
|
|
|
|
Variable Rate Debt:(1)
|
|
|
|
|
|
|
|
|
Carrying amount — liability
|
|
$
|
2,150
|
|
|
$
|
1,632
|
|
Fair value — liability
|
|
|
1,889
|
|
|
|
1,632
|
|
(1)
|
Excludes Notes Payable and Overdrafts of $691 million and $348 million at March 31, 2020 and December 31, 2019, respectively, of which $199 million and $143 million, respectively, are at fixed rates and $492 million and $205 million, respectively, are at variable rates. The carrying value of Notes Payable and Overdrafts approximates fair value due to the short term nature of the facilities.
|
Long term debt with fair values of $3,300 million and $3,808 million at March 31, 2020 and December 31, 2019, respectively, were estimated using quoted Level 1 market prices. The carrying value of the remaining debt was based upon internal estimates of fair value derived from market prices for similar debt.
NOTE 12. PENSION, SAVINGS AND OTHER POSTRETIREMENT BENEFIT PLANS
We provide employees with defined benefit pension or defined contribution savings plans.
Defined benefit pension cost follows:
|
|
U.S.
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
Service cost
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
|
33
|
|
|
|
44
|
|
Expected return on plan assets
|
|
|
(49
|
)
|
|
|
(56
|
)
|
Amortization of net losses
|
|
|
27
|
|
|
|
28
|
|
Net periodic pension cost
|
|
$
|
12
|
|
|
$
|
17
|
|
Net curtailments/settlements/termination benefits
|
|
|
1
|
|
|
|
—
|
|
Total defined benefit pension cost
|
|
$
|
13
|
|
|
$
|
17
|
|
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|
|
Non-U.S.
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2020
|
|
|
2019
|
|
Service cost
|
|
$
|
7
|
|
|
$
|
7
|
|
Interest cost
|
|
|
14
|
|
|
|
18
|
|
Expected return on plan assets
|
|
|
(14
|
)
|
|
|
(15
|
)
|
Amortization of prior service cost
|
|
|
1
|
|
|
|
—
|
|
Amortization of net losses
|
|
|
10
|
|
|
|
7
|
|
Net periodic pension cost
|
|
$
|
18
|
|
|
$
|
17
|
|
Net curtailments/settlements/termination benefits
|
|
|
1
|
|
|
|
1
|
|
Total defined benefit pension cost
|
|
$
|
19
|
|
|
$
|
18
|
|
Service cost is recorded in CGS or SAG. Other components of net periodic pension cost are recorded in Other (Income) Expense. Net curtailments, settlements and termination benefits are recorded in Other (Income) Expense or Rationalizations if related to a rationalization plan.
We also provide certain U.S. employees and employees at certain non-U.S. subsidiaries with health care benefits or life insurance benefits upon retirement. Other postretirement benefits (credit) expense for the three months ended March 31, 2020 was ($3) million and included the curtailment credit of ($4) million discussed below. Other postretirement benefits (credit) expense for the three months ended March 31, 2019 was $2 million.
During the first quarter of 2020, we recognized settlement charges of $2 million for defined benefit pension plans in Other (Income) Expense and a curtailment credit of ($4) million for one of our non-U.S. other postretirement benefit plans in Rationalizations, related to the exit of employees under an approved rationalization plan.
We expect to contribute approximately $25 million to $50 million to our funded non-U.S. pension plans in 2020. For the three months ended March 31, 2020, we contributed $7 million to our non-U.S. plans.
The expense recognized for our contributions to defined contribution savings plans for the three months ended March 31, 2020 and 2019 was $30 million and $28 million, respectively.
NOTE 13. STOCK COMPENSATION PLANS
Our Board of Directors granted 4.2 million stock options, 0.3 million restricted stock units and 0.2 million performance share units during the three months ended March 31, 2020 under our stock compensation plans. The weighted average exercise price per share and weighted average fair value per share of the stock option grants during the three months ended March 31, 2020 were $10.12 and $1.97, respectively. We estimated the fair value of the stock options using the following assumptions in our Black-Scholes model:
Expected term: 7.5 years
Interest rate: 1.29%
Volatility: 41.28%
Dividend yield: 6.54%
We measure the fair value of grants of restricted stock units and performance share units based primarily on the closing market price of a share of our common stock on the date of the grant, modified as appropriate to take into account the features of such grants. The weighted average fair value per share was $10.12 for restricted stock units and $7.80 for performance share units granted during the three months ended March 31, 2020.
We recognized stock-based compensation expense of $6 million and $3 million during the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020, unearned compensation cost related to the unvested portion of all stock-based awards was approximately $39 million and is expected to be recognized over the remaining vesting period of the respective grants, through the first quarter of 2024.
NOTE 14. COMMITMENTS AND CONTINGENT LIABILITIES
Environmental Matters
We have recorded liabilities totaling $48 million at both March 31, 2020 and December 31, 2019 for anticipated costs related to various environmental matters, primarily the remediation of numerous waste disposal sites and certain properties sold by us. Of these amounts, $12 million and $13 million were included in Other Current Liabilities at March 31, 2020 and December 31, 2019, respectively. The costs include legal and consulting fees, site studies, the design and implementation of remediation plans, post-remediation monitoring and related activities, and will be paid over several years. The amount of our ultimate liability in respect of these matters may be affected by several uncertainties, primarily the ultimate cost of required remediation and the
20
Table of contents
extent to which other responsible parties contribute. We have limited potential insurance coverage for future environmental claims.
Since many of the remediation activities related to environmental matters vary substantially in duration and cost from site to site and the associated costs for each vary depending on the mix of unique site characteristics, in some cases we cannot reasonably estimate a range of possible losses. Although it is not possible to estimate with certainty the outcome of all of our environmental matters, management believes that potential losses in excess of current reserves for environmental matters, individually and in the aggregate, will not have a material adverse effect on our financial position, cash flows or results of operations.
Workers’ Compensation
We have recorded liabilities, on a discounted basis, totaling $198 million for anticipated costs related to workers’ compensation at both March 31, 2020 and December 31, 2019. Of these amounts, $40 million and $39 million were included in Current Liabilities as part of Compensation and Benefits at March 31, 2020 and December 31, 2019, respectively. The costs include an estimate of expected settlements on pending claims, defense costs and a provision for claims incurred but not reported. These estimates are based on our assessment of potential liability using an analysis of available information with respect to pending claims, historical experience, and current cost trends. The amount of our ultimate liability in respect of these matters may differ from these estimates. We periodically, and at least annually, update our loss development factors based on actuarial analyses. At March 31, 2020 and December 31, 2019, the liability was discounted using a risk-free rate of return. At March 31, 2020, we estimate that it is reasonably possible that the liability could exceed our recorded amounts by approximately $25 million.
General and Product Liability and Other Litigation
We have recorded liabilities totaling $303 million and $293 million, including related legal fees expected to be incurred, for potential product liability and other tort claims, including asbestos claims, at March 31, 2020 and December 31, 2019, respectively. Of these amounts, $43 million was included in Other Current Liabilities at both March 31, 2020 and December 31, 2019. The amounts recorded were estimated based on an assessment of potential liability using an analysis of available information with respect to pending claims, historical experience and, where available, recent and current trends. Based upon that assessment, at March 31, 2020, we do not believe that estimated reasonably possible losses associated with general and product liability claims in excess of the amounts recorded will have a material adverse effect on our financial position, cash flows or results of operations. However, the amount of our ultimate liability in respect of these matters may differ from these estimates.
We have recorded an indemnification asset within Accounts Receivable of $3 million and within Other Assets of $22 million for Sumitomo Rubber Industries, Ltd.'s ("SRI") obligation to indemnify us for certain product liability claims related to products manufactured by a formerly consolidated joint venture entity, subject to certain caps and restrictions.
Asbestos. We are a defendant in numerous lawsuits alleging various asbestos-related personal injuries purported to result from alleged exposure to asbestos in certain products manufactured by us or present in certain of our facilities. Typically, these lawsuits have been brought against multiple defendants in state and federal courts. To date, we have disposed of approximately 152,900 claims by defending, obtaining the dismissal thereof, or entering into a settlement. The sum of our accrued asbestos-related liability and gross payments to date, including legal costs, by us and our insurers totaled approximately $557 million through March 31, 2020 and $554 million through December 31, 2019.
A summary of recent approximate asbestos claims activity follows. Because claims are often filed and disposed of by dismissal or settlement in large numbers, the amount and timing of settlements and the number of open claims during a particular period can fluctuate significantly.
|
|
Three Months Ended
|
|
|
Year Ended
|
|
(Dollars in millions)
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Pending claims, beginning of period
|
|
|
39,600
|
|
|
|
43,100
|
|
New claims filed
|
|
|
300
|
|
|
|
1,500
|
|
Claims settled/dismissed
|
|
|
(700
|
)
|
|
|
(5,000
|
)
|
Pending claims, end of period
|
|
|
39,200
|
|
|
|
39,600
|
|
Payments(1)
|
|
$
|
2
|
|
|
$
|
22
|
|
(1)
|
Represents cash payments made during the period by us and our insurers on asbestos litigation defense and claim resolution.
|
We periodically, and at least annually, review our existing reserves for pending claims, including a reasonable estimate of the liability associated with unasserted asbestos claims, and estimate our receivables from probable insurance recoveries. We recorded gross liabilities for both asserted and unasserted claims, inclusive of defense costs, totaling $154 million and $153 million at March 31, 2020 and December 31, 2019, respectively. In determining the estimate of our asbestos liability, we evaluated claims over the next ten-year period. Due to the difficulties in making these estimates, analysis based on new data and/or a change in circumstances arising in the future may result in an increase in the recorded obligation, and that increase could be significant.
We maintain certain primary and excess insurance coverage under coverage-in-place agreements, and also have additional excess liability insurance with respect to asbestos liabilities. After consultation with our outside legal counsel and giving consideration
21
Table of contents
to agreements with certain of our insurance carriers, the financial viability and legal obligations of our insurance carriers and other relevant factors, we determine an amount we expect is probable of recovery from such carriers. We record a receivable with respect to such policies when we determine that recovery is probable and we can reasonably estimate the amount of a particular recovery.
We recorded a receivable related to asbestos claims of $95 million at both March 31, 2020 and December 31, 2019. We expect that approximately 60% of asbestos claim related losses would be recoverable through insurance during the ten-year period covered by the estimated liability. Of these amounts, $13 million was included in Current Assets as part of Accounts Receivable at both March 31, 2020 and December 31, 2019. The recorded receivable consists of an amount we expect to collect under coverage-in-place agreements with certain primary and excess insurance carriers as well as an amount we believe is probable of recovery from certain of our other excess insurance carriers.
We believe that, at December 31, 2019, we had approximately $555 million in excess level policy limits applicable to indemnity and defense costs for asbestos products claims under coverage-in-place agreements. We also had additional unsettled excess level policy limits potentially applicable to such costs. We had coverage under certain primary policies for indemnity and defense costs for asbestos products claims under remaining aggregate limits pursuant to a coverage-in-place agreement, as well as coverage for indemnity and defense costs for asbestos premises claims pursuant to coverage-in-place agreements.
With respect to both asserted and unasserted claims, it is reasonably possible that we may incur a material amount of cost in excess of the current reserve; however, such amounts cannot be reasonably estimated. Coverage under insurance policies is subject to varying characteristics of asbestos claims including, but not limited to, the type of claim (premise vs. product exposure), alleged date of first exposure to our products or premises and disease alleged. Recoveries may be limited by insurer insolvencies or financial difficulties. Depending upon the nature of these characteristics or events, as well as the resolution of certain legal issues, some portion of the insurance may not be accessible by us.
Amiens Labor Claims
Approximately 850 former employees of the closed Amiens, France manufacturing facility have asserted wrongful termination or other claims totaling approximately €140 million ($154 million) against Goodyear France SAS. We intend to vigorously defend ourselves against these claims, and any additional claims that may be asserted against us, and cannot estimate the amounts, if any, that we may ultimately pay in respect of such claims.
Other Actions
We are currently a party to various claims, indirect tax assessments and legal proceedings in addition to those noted above. If management believes that a loss arising from these matters is probable and can reasonably be estimated, we record the amount of the loss, or the minimum estimated liability when the loss is estimated using a range and no point within the range is more probable than another. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary. Based on currently available information, management believes that the ultimate outcome of these matters, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations.
Our recorded liabilities and estimates of reasonably possible losses for the contingent liabilities described above are based on our assessment of potential liability using the information available to us at the time and, where applicable, any past experience and recent and current trends with respect to similar matters. Our contingent liabilities are subject to inherent uncertainties, and unfavorable judicial or administrative decisions could occur which we did not anticipate. Such an unfavorable decision could include monetary damages, fines or other penalties or an injunction prohibiting us from taking certain actions or selling certain products. If such an unfavorable decision were to occur, it could result in a material adverse impact on our financial position and results of operations in the period in which the decision occurs, or in future periods.
Income Tax Matters
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We also recognize income tax benefits to the extent that it is more likely than not that our positions will be sustained when challenged by the taxing authorities. We derecognize income tax benefits when based on new information we determine that it is no longer more likely than not that our position will be sustained. To the extent we prevail in matters for which liabilities have been established, or determine we need to derecognize tax benefits recorded in prior periods, our results of operations and effective tax rate in a given period could be materially affected. An unfavorable tax settlement would require use of our cash, and lead to recognition of expense to the extent the settlement amount exceeds recorded liabilities and, in the case of an income tax settlement, result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction of expense to the extent the settlement amount is lower than recorded liabilities and, in the case of an income tax settlement, would result in a reduction in our effective tax rate in the period of resolution.
While we apply consistent transfer pricing policies and practices globally, support transfer prices through economic studies, seek advance pricing agreements and joint audits to the extent possible and believe our transfer prices to be appropriate, such transfer
22
Table of contents
prices, and related interpretations of tax laws, are occasionally challenged by various taxing authorities globally. We have received various tax assessments challenging our interpretations of applicable tax laws in various jurisdictions. Although we believe we have complied with applicable tax laws, have strong positions and defenses and have historically been successful in defending such claims, our results of operations could be materially adversely affected in the case we are unsuccessful in the defense of existing or future claims.
Guarantees
We have off-balance sheet financial guarantees and other commitments totaling approximately $70 million and $74 million at March 31, 2020 and December 31, 2019, respectively. We issue guarantees to financial institutions or other entities on behalf of certain of our affiliates, lessors or customers. We generally do not require collateral in connection with the issuance of these guarantees.
In 2017, we issued a guarantee of approximately PLN165 million ($40 million) in connection with an indirect tax assessment in EMEA. This guarantee amount was subsequently increased to PLN 181 million ($44 million). We have concluded our performance under this guarantee is not probable and, therefore, have not recorded a liability for this guarantee. In 2015, as a result of the dissolution of the global alliance with SRI, we issued a guarantee of approximately $46 million to an insurance company related to SRI's obligation to pay certain outstanding workers' compensation claims of a formerly consolidated joint venture entity. As of March 31, 2020, this guarantee amount has been reduced to $26 million. We have concluded the probability of our performance to be remote and, therefore, have not recorded a liability for this guarantee. While there is no fixed duration of this guarantee, we expect the amount of this guarantee to continue to decrease over time as the formerly consolidated joint venture entity pays its outstanding claims. If our performance under these guarantees is triggered by non-payment or another specified event, we would be obligated to make payment to the financial institution or the other entity, and would typically have recourse to the affiliate, lessor, customer, or SRI. Except for the workers' compensation guarantee described above, the guarantees expire at various times through 2021. We are unable to estimate the extent to which our affiliates’, lessors’, customers’, or SRI's assets would be adequate to recover any payments made by us under the related guarantees.
NOTE 15. CAPITAL STOCK
Dividends
In the first three months of 2020, we paid cash dividends of $37 million on our common stock. This amount excludes dividends earned on stock-based compensation plans of approximately $1 million during the first quarter of 2020. On April 16, 2020, we announced that we have temporarily suspended the quarterly dividend on our common stock.
Common Stock Repurchases
We may repurchase shares delivered to us by employees as payment for the exercise price of stock options and the withholding taxes due upon the exercise of stock options or the vesting or payment of stock awards. During the first quarter 2020, we did not repurchase any shares from employees.
23
Table of contents
NOTE 16. RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE LOSS
The following tables present changes in AOCL, by component, for the three months ended March 31, 2020 and 2019:
(In millions) Income (Loss)
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Unrecognized
Net Actuarial
Losses and
Prior Service
Costs
|
|
|
Deferred
Derivative
Gains (Losses)
|
|
|
Total
|
|
Balance at December 31, 2019
|
|
$
|
(1,156
|
)
|
|
$
|
(2,983
|
)
|
|
$
|
3
|
|
|
$
|
(4,136
|
)
|
Other comprehensive income (loss) before
reclassifications, net of tax
|
|
|
(216
|
)
|
|
|
(1
|
)
|
|
|
18
|
|
|
|
(199
|
)
|
Amounts reclassified from accumulated other
comprehensive loss, net of tax
|
|
|
—
|
|
|
|
26
|
|
|
|
(4
|
)
|
|
|
22
|
|
Balance at March 31, 2020
|
|
$
|
(1,372
|
)
|
|
$
|
(2,958
|
)
|
|
$
|
17
|
|
|
$
|
(4,313
|
)
|
(In millions) Income (Loss)
|
|
Foreign
Currency
Translation
Adjustment
|
|
|
Unrecognized
Net Actuarial
Losses and
Prior Service
Costs
|
|
|
Deferred
Derivative
Gains (Losses)
|
|
|
Total
|
|
Balance at December 31, 2018
|
|
$
|
(1,160
|
)
|
|
$
|
(2,923
|
)
|
|
$
|
7
|
|
|
$
|
(4,076
|
)
|
Other comprehensive income (loss) before
reclassifications, net of tax
|
|
|
30
|
|
|
|
4
|
|
|
|
5
|
|
|
|
39
|
|
Amounts reclassified from accumulated other
comprehensive loss, net of tax
|
|
|
—
|
|
|
|
26
|
|
|
|
(3
|
)
|
|
|
23
|
|
Balance at March 31, 2019
|
|
$
|
(1,130
|
)
|
|
$
|
(2,893
|
)
|
|
$
|
9
|
|
|
$
|
(4,014
|
)
|
The following table presents reclassifications out of AOCL:
|
|
Three Months Ended March 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(In millions) (Income) Expense
|
|
Amount Reclassified
|
|
|
Affected Line Item in the Consolidated
|
Component of AOCL
|
|
from AOCL
|
|
|
Statements of Operations
|
Amortization of prior service cost and unrecognized
gains and losses
|
|
$
|
36
|
|
|
$
|
34
|
|
|
Other (Income) Expense
|
Immediate recognition of prior service cost and unrecognized gains and losses due to curtailments, settlements and divestitures
|
|
|
(2
|
)
|
|
|
—
|
|
|
Other (Income) Expense / Rationalizations
|
Unrecognized net actuarial losses and prior service costs, before tax
|
|
|
34
|
|
|
|
—
|
|
|
|
Tax effect
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
United States and Foreign Taxes
|
Net of tax
|
|
$
|
26
|
|
|
$
|
26
|
|
|
Goodyear Net Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Deferred derivative (gains) losses, before tax
|
|
$
|
(4
|
)
|
|
$
|
(3
|
)
|
|
Cost of Goods Sold
|
Tax effect
|
|
|
—
|
|
|
|
—
|
|
|
United States and Foreign Taxes
|
Net of tax
|
|
$
|
(4
|
)
|
|
$
|
(3
|
)
|
|
Goodyear Net Income (Loss)
|
Total reclassifications
|
|
$
|
22
|
|
|
$
|
23
|
|
|
Goodyear Net Income (Loss)
|
NOTE 17. SUBSEQUENT EVENT
On April 17, 2020, we reached a tentative bargaining agreement and subsequently approved a plan to permanently close our Gadsden, Alabama manufacturing facility as part of our strategy to strengthen the competitiveness of our manufacturing footprint by curtailing production of tires for declining, less profitable segments of the tire market. The tentative bargaining agreement remains subject to approval by the membership of the local union. We estimate the total pre-tax charges associated with this plan to be $280 million to $295 million, of which $170 million to $180 million are expected to be cash charges, primarily for severance and other associate-related costs of approximately $55 million and $40 million, respectively, and other closure costs of $75 million to $85 million. Non-cash charges, primarily related to asset write-offs and accelerated depreciation, are expected to be $110 million to $115 million. We expect to record approximately $170 million of these charges in the second quarter of 2020 and make cash payments of approximately $45 million in 2020. The remaining charges will be recorded and the remaining cash payments will be made thereafter, primarily in 2021 and 2022. We expect to substantially complete this rationalization plan by the fourth quarter of 2021.
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